Is Bigger Really Better?
Bigger can be better, but many times it simply
isn't. First, you have to make several decisions:
•Do you really want to be bigger, with the
•Are you willing to tolerate more mediocrity
that will inevitably come from having more employees?
•Can you, and are you willing to hire employees
who have the skills that you may not have, like accounting,
that will be necessary to get you to the next level?
•Do you have what you deem to be the appropriate
mix of personal and business time, and will being bigger affect
•Will your facility and credit lines (or internally
generated capital) accommodate the growth?
Many say that getting bigger will allow greater
synergies that will translate into greater sales and profits.
Don't believe it. Although it is possible, it's elusive at best.
Getting bigger at one location is much better than acquiring
My recycling friends used to ask me how I
could manage six locations and 140 employees, when they couldn't
seem to keep up with one location. The key, at least for me,
was in maintaining good operating metrics and surrounding myself
with really good people.
If you aren't currently gathering the metrics
and studying monthly financial statements that accurately reflect
true monthly income and cash flows, don't even consider getting
any bigger. (Many operators have accountants who don't know
how to treat cost of goods and other special recycling issues
to give an accurate period correct income statement.) The same
friends said they couldn't hire 20 good people, much less 140.
If you have weak employees, it's your fault. You either made
bad hires, continued to tolerate them, and/or haven't provided
the proper training, structure, discipline, and leadership needed.
Start being accountable for weak employees; you are the only
one who can change this pattern.
I personally know and consult many small yards,
with $50k to $125k in monthly sales, which are making 20+% net
profit. On one million in sales, they will make $250,000 this
year in profit. They are doing great and don't want to lose
profits by getting bigger. It's not uncommon to see net margins
below 10% in larger operations, even below 5%. But, 5-10% of
a big number can be many more dollars that 20% of a small number.
You will have to decide if it's worth it.
A wise friend once told me, "If inventory plays
a big role in your business and being bigger doesn't reduce
the inventory cost, there is no incentive to be bigger." Clearly,
there is a time at which this is important, and you reach a
point of diminishing return. A lot of factors drive such a point,
but really big, like millions per month, could easily be past
An operation spending millions per month on
inventory is probably paying just as much as the yard buying
40 cars per month; so fifty cents of every dollar earned is
spent the same way for each operation. That only leaves 50 cents
to carve out a profit and a competitive edge.
The desire to get bigger is endemic to all
of us, generally speaking. Boaters have "one footitis", and
recyclers always want later model salvage.
Do what's right for you; don't get bigger just
for the sake of getting bigger, or because your competitor is
bigger. Choose your customer niche, understand your core competencies,
and execute against a well-made plan.
Next month: Tips on building a business plan.
Remember, only you can make BUSINESS GREAT!